Pound falls as investors expect the Bank of England to cut interest rates on Thursday.

In Monday’s London session, the pound sterling (GBP) underperformed its key counterparts. The British pound declines ahead of Thursday’s Bank of England (BoE) monetary policy meeting. The BoE anticipated to lower interest rates by 25 basis points to 5%. This will be the first rate cut decision of the BoE in more than four years since pandemic-driven stimulus prompted global central Banks might shift to a more restrictive policy framework in an effort to normalize inflated global markets.

Market analysts anticipate that the BoE’s rate-cutting action will be difficult, as strong inflation in the service sector remains a concern for policymakers. Though yearly headline inflation has reverted to the desired pace of 2%, rising service inflation may jeopardize its sustainability.

Meanwhile, the arrival of UK Prime Minister Keir Starmer in Parliament with an absolute majority has improved the economic picture. An increase in manufacturing and service sector activity could result in a rise in input prices, which could reignite price pressures.

Daily Market movers: Pound Sterling sets another two-week low against the US dollar.

The pound sterling posted a fresh two-week Monday’s European trading hours saw a low of 1.2810 against the US Dollar (USD). The GBPUSD pair falls as the US Dollar rises amid uncertainty ahead of Wednesday’s Federal Reserve (Fed) monetary policy statement. The US Dollar Index (DXY), which measures the value of the greenback against six major currencies, rises to 104.50.

The Fed widely expected to preserve the status quo.

Fed widely expected to keep interest rates unchanged at 5.25%-5.50% for the eighth time in a row. As a result, market participants will closely watch the monetary policy statement and Fed Chair Jerome Powell’s press conference to see if policymakers are comfortable with market expectations of two rate cuts this year and choosing the September meeting to kick off the much-anticipated policy-easing cycle.

Financial markets expect The Fed will acknowledge strong success in lowering inflation to its aim of 2% while heightening labor market vulnerabilities. This would suggest the Fed’s preparedness to reduce interest rates.
Contrary to market expectations, Bank of America (BofA) economists suggested on Friday that falling consumer demand and inflation may not be occurring quickly enough to allow for as much policy easing as financial markets anticipate. They continued: “We remain comfortable with our forecast that cuts will start in December, but upcoming inflation and employment data could tip the scale to an earlier cut,” according to CNN.
Aside from Fed policy, investors will also focus on a string of United States (US) economic data such as JOLTS Job Openings for June, ADP Employment Change, and ISM Manufacturing Purchasing Managers Index (PMI) and Nonfarm Payrolls figures for July.